How the asset management industry is being transformed by fintech

21 November 2016

60% of asset and wealth managers fear losing part of their business to fintech companies, according to PwC’s 2016 Global Fintech Survey. The reality of this fear is being hotly debated in the traditional financial sector currently, as many banking professionals also feel threatened by new automated services that could in turn, put their jobs at risk. However, according to the PwC report, 17% of incumbents underestimate the success new entrants have already had and do not believe that they pose any threat.

PwC’s advice for asset and wealth managers is to adopt a digital strategy. The 1980s saw this industry lead the way in financial technology, but over time, asset managers seem to have fallen behind in the fintech race. “History could repeat itself again with the ongoing disruption caused by fintech companies. Much like online brokerages, “robo-advisors” have been disparaged as less valuable than human professional wealth advisors, and so far have been focusing mainly on low balance accounts.”

“But the innovations under the umbrella of “robo-advisors” are becoming more sophisticated and, thus, enable advisors to service higher net worth accounts. In fact, “robo-advisors” create an opportunity for asset managers to target the mass affluent who are looking for cheaper alternatives to receive advice on how to manage their assets,” the report read. 35% of the survey participants viewed the asset management industry as the most likely to be disrupted, but the report also explored how only investing in automation could result in missed opportunities.

Are asset managers really immune to fintech? PwC doesn’t seem to think so and this is cause for concern. “When asked about any type of threat, AWNs were the least concerned. The surveyed industry players believe fintech will have only a limited impact on their businesses with 61% of respondents expecting an increased pressure on margins, followed by concerns around data privacy (51%) and loss of market share (50%).” In addition to this, while access to mobile phones is increasing on a global scale, the report explained how asset managers should understand the scale of the impact fintech is having on client relationships.

The report detailed how rather than going through a digital transformation, asset managers believe that offering a website is enough to satisfy the customer, but now that online banking is fairly mainstream, this is another area in which asset managers are lagging behind. Only 31% of asset and wealth managers surveyed by PwC have a mobile application and just 14% are thinking about launching one. Alongside this, 58% believe that a phone app is not needed because less than 20% of their clients use mobile phones.

Although, 90% of asset and wealth managers valued data analytics and understood the importance of the technology trend. “Machine learning technology is transforming risk management by enabling computers to identify patterns in market behaviour and analyse transactions almost in real time. This, in turn, is reducing the asymmetry of information between small and large financial institutions and investors. Alternative data pools are also increasing AWMs’ usage of accurate predictive analysis supported by innovative data and opinion mining, imagery analytics, machine learning and artificial intelligence techniques,” the report said.

AWMs, or asset and wealth managers, have found it difficult to ensure profits are made from working with clients with fewer total assets, but some organisations have already tried to tackle this by acquiring fintech platforms or strengthening automated services. PwC stated that AWM’s should become data custodians because they are already recognised as trustworthy data collectors and after leveraging the data, solutions that address client needs can be offered. In addition to this, blockchain is viewed as having disruptive potential for post-trade settlement through streamlining, mutualising and cutting costs.

“By using the DLT, the need for reconciliation of proprietary databases is eliminated. Also, embedding business logic in the code of a smart contract could impact the AWM value chain in terms of augmenting, streamlining or possibly completely reinventing current processes.” PwC states that while the fintech sector is still in its infancy, 69% of survey respondents believe that cost reduction is the number one gain expected from fintech. “Forward thinking AWMs will be able to find the right mix of technology and personal touch for a given customer segment and take the advantage of creating the kind of client experience that customers receive from their other, financial and non-financial, service providers.”

In conclusion, PwC’s main message is that ignoring innovation can be dangerous for businesses and asset managers who adopt a technology-focused strategy with fintech in mind will strengthen their market position. “Collaboration with fintechs is crucial and will be the only way for the traditional firms to deliver technological solutions at the speed expected by the market. New entrants create tangible opportunities for incumbents to improve their traditional offerings. Going forward, traditional players need to prioritise these types of investments.”

Madhvi Mavadiya - Editor (2015-2016), bobsguide

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